Monday, 9 June 2014

Dogmatic Indifference

Last week Roger Pielke Jr had a letter to the FT published where he questioned the effectiveness of a carbon cap in China. Paul Krugman responded to Pielke's letter with a post where he claims that

the letter offers a teachable moment, a chance to explain why claims that we can’t limit emissions without destroying economic growth are nonsense

I am neither a climate scientist not an economist, but none the less I will offer my opinion on the debate because I think it offers a "teachable moment" of the perils of dogmatism in policy formulation by relating this discussion to my reflections on a meeting I had attended, hosted by the University of Edinburgh's Institute for Advanced Study in the Humanities, as the debate was going on.

Pielke based his argument on the "Kaya identity". What is interesting as a mathematician is Pielke is talking about an "identity" not a "model". For example E=mc^2 is a model (or definition), and identity is a stronger statement, basically what is on the left hand side of the equation is identical to what is on the rhs. The Kaya Identity is a straightforward tautology, the lhs is "CO2" (carbon dioxide emissions) the rhs is

P * GDP/P * E/GDP * CO2/E

Noting that "P" (population) "GDP" and "E" (energy consumption) are all in the numerator and denominator the rhs can be re-written

1*1*1*CO2.

The analytic value of the Kaya Identity is that it decomposes the human impact on the environment into three factors: population, affluence (GDP/P) and technology (CO2/GDP) which is divided into "Energy Intensity" (E/GDP) and "Carbon Intensity" (CO2/E). Pielke's argument is that by fixing "CO2" (the rhs) implies that for GDP/P (affluence) to go up there needs to be reductions caused by technological changes (Carbon and/or Energy Intensity go down). This seems like a sound argument to me, but I am no expert.

Krugman's response to Pielke's letter is

This is actually kind of wonderful, in a bang-your-head-on-the-table sort of way. Pielke isn’t claiming that it’s hard in practice to limit emissions without halting economic growth, he’s arguing that it’s logically impossible. So let’s talk about why this is stupid.

The point to note here is that Pielke is not arguing that it is "logically impossible to limit emissions without halting economic growth" he is arguing that it is "logically impossible to limit without halting economic growth or creating new technologies". Perhaps because Krugman is an economist he is overlooks the need to create technology here, physical things that have tangible effects. Krugman goes on to say

Yes, emissions reflect the size of the economy and the available technologies. But they also reflect choices – choices about what to consume and how to produce it, choices about which of a number of energy technologies to use. These choices are, in turn, strongly affected by incentives: change the incentives and you can greatly change the quantity of emissions associated with a given amount of real GDP.

and at the end of the piece

Let me add, by the way, that Pielke’s fallacy here – the notion that there’s a rigid link between growth and pollution – is shared by some people on the left, who believe that saving the planet means that economic growth must end. What we actually need is a change in the form of growth – and that’s exactly the kind of thing markets are good at, if you get the prices right.

What strikes me is that Krugman seems to believe that by sprinkling the fairy dust of incentives over society the emission busting new technologies will emerge. This is a bit too deterministic for me. Furthermore there is a blind faith in the power of markets. This is problematic for a number of reasons, firstly European Cap and Trade policies are widely regarded as a failure, though market advocates would point to a problem of design (Fac me bonum, deus meus, sed noli modo-Give me chastity and self-control, but not just yet).

There is a more problematic criticisms of market mechanisms; their morality. Cap and trade enables a polluter to pollute by paying a penalty - they are in effect the indulgences that the Medieval church was criticised for. The problem is that CO2 emissions in Europe, China or America have the potential to impact on the well being of future generations in Africa or Indian or Pacific Islands. It is not clear how the payment of the penalty by the polluter will mitigate the suffering of the people affected by the pollution. The operators of Heathrow airport benefit from the operation of the airport, the people living around the airport do not benefit from it. The question is: are we entitled to buy and sell permits to pollute? in the same sense as are we entitled to buy and sell humans?

Krugman might baulk at the comparison, but Michael Northcott, the Professor of Ethics at Edinburgh, might not. Northcott gave a presentation at the IASH meeting where he made a case against capitalism because capitalism insisted on GDP growth at the lowest cost, which resulted in pollution. Northcott builds his argument, in part at least, on Political Theology.

Since I base my arguments for seeing markets as centre of communicative action on rejections on two key components of Political Theory, Schmitt's views on sovereignty and Adorno's criticism of modernity, it is unlikely that Northcott and I will agree. It is not peculiar for Northcott, as a minister of the church, to be attracted to Schmitt's neo-Hobbesian attitudes that the sovereign's authority has precedence over the (liberal) law, since he will believe in the sovereignty of a god. My work on the nature of the markets rests heavily on Cheryl Misak's Truth, Politics and Morality, which is an explicit rejection of Schmitt in favour of liberal pluralism. Another basis of my work is Habermas' rejection of the negativity towards modernity in the Dialetic of the Enligthenment.

Krugman and Northcott agree on the policy: that carbon emissions should be capped, but they do so from very different ideological positions. Northcott from the theological dogma of "thou shalt not because I speak with the authority of a transcendental god", Krugman from the economic dogma "thou shalt not because the market will deliver us from evil", but both dogmas are in opposition to each other. This dissonance, I believe, enables those who oppose climate change mitigation policies to focus on the ideology underpinning the justification for carbon caps rather than the factuality of the dangers of carbon emissions.

Another speaker at the IASH conference, and the person who invited me to attend, was Paolo Quattrone. Paolo shares, from the perspective of accounting, my view (ideology, if you like) that

financial markets are, and should be treated as, centres of communicative action with the purpose of achieving a consensus on the ‘just’ price of assets in an uncertain world. In this framework, markets should operate on the basis of norms of discourse, such as reciprocity, sincerity and charity. My argument focuses on a discussion of how the norm of reciprocity is deeply embedded in the Fundamental Theorem of Asset Pricing, the foundational theory of mathematicians working in finance. A key conclusion is that, in this framework, mathematics provides the discursive language, rather than being a truth-bearer.

Paolo has researched Jesuit accounting practices where the financial accounts were a tool for reflection, rather than a statement of fact. This approach was a feature of Italian accounting practices (GAAP) until there was global standardisation of GAAP and meant that in the 1960s Italian accounts involved facts, based on market prices, and less certain valuations based on judgement. The emphasis of the accountant was to reflect on the less certain aspects of the accounts. Today there is an emphasis on "objective" market prices, and where these are unavailable "model" prices.

Paolo also highlighted a feature of Jesuitical practice; that the Jesuit must be "indifferent". The immediate interpretation of this is that the Jesuit does not care, but Paolo explained it meant that the Jesuit had to be "rational" "in difference". That is, the Jesuit had to be concious of the different ideologies around them and come to a judgement on the basis of this conciousness.

I think this "in-difference" concept is important for scientists in the climate debate. It is not the same as "apolitical", since arguing for climate change mitigation actions is arguing for policy, which is political. The role of the scientist should be that of the "indifferent" questioner who challenges the claim, irrespective of its ideological basis. In this respect Pielke, in challenging the assumption that a carbon cap would work, is playing the correct role of a scientist.

This is important because in a liberal democracy policy decisions need to be justified. This is not the same as a majority needs to accept a policy, my understanding is that around 60% of the population of western democracies accept the need for climate mitigation policies, but a small minority challenge them. For the policies to be "democratically valid" they need to be justified to the minority not accepted by the majority. The opening quote to Karl Popper's The Open Society and Its Enemies is from Pericles

Although only a few may originate a policy, we are all able to judge it.

It is against the Open Society to condemn challenges to policy.

Cheryl Misak's justification for liberal democracy is because it is through deliberation that the best decisions are arrived at. Pielke is challenging the claim that carbon caps will lead to a better society because it demands the policy is justified (deliberatively). In challenging it, those who advocate the cap must respond to the criticism, not reject the criticism on the basis of divine or economic authority. If they do not respond the public cannot be sure that the policy is the "best" policy and doubt will prevail.

What makes rational action on climate so hard is something else – a toxic mix of ideology and anti-intellectualism.

and then at the end of the piece

The fact that climate concerns rest on scientific consensus makes things even worse, because it plays into the anti-intellectualism that has always been a powerful force in American life, mainly on the right. It’s not really surprising that so many right-wing politicians and pundits quickly turned to conspiracy theories, to accusations that thousands of researchers around the world were colluding in a gigantic hoax whose real purpose was to justify a big-government power grab. After all, right-wingers never liked or trusted scientists in the first place.

So the real obstacle, as we try to confront global warming, is economic ideology [I take this to be market libertarianism] reinforced by hostility to science. In some ways this makes the task easier: we do not, in fact, have to force people to accept large monetary losses. But we do have to overcome pride and willful ignorance, which is hard indeed.

On the one hand Krugman be-moans the anti-intellectualism of America, but I see America's scepticism towards academic (and theocratic, plutocratic, aristocratic) authority as part of the bed-rock upon which its democracy is built. The vast majority of the public respect and admire science and scientists, but there is also a legitimate concern that cloistered and wealthy academics are imposing un-justified policies on the public.

The evangelical right might ask "What would Jesus do?", maybe the academic left could similarly ask "What would Pierce/James/Dewey do?" when faced with a doubtful public minority.

Posted by
Tim Johnson

30 comments:

Krugman responds: "There has been a lot of theorizing about induced innovation, but it’s not solidly grounded in empirical evidence and was not at all what I was talking about. I was talking about the fact that at any given time we have a choice of already existing technologies. You can drive a conventional SUV, but you could also drive a hybrid, or for that matter a smaller vehicle that, say, emits half as much carbon as the SUV while providing services that are a lot more than half of what the SUV would provide. You can generate electricity using a coal-fired plant, but you can also use a gas-fired plant, a wind turbine, or solar panels.

None of these are technologies that need developing; they’re already here and in fairly widespread use. And do you really want to deny that which technology people choose is affected by incentives?"

Krugman's point was that using EXISTING technologies can make a difference in the lowering of emissions. We already have solar and wind technology available for creating electricity, and Hybrid and electric vehicles for transport, which emit fewer carbons, to name a couple aspects. Shifting to greater reliance on them would incur minimal costs that would be nowhere near a one-to-one basis. That was his point.

It was obvious that's what he meant, to me, and I'm neither an economist nor scientist. Which makes one wonder -- why do you think he means new technology needs to be brought forth, or that Pielke is being anything but disingenuous...at best?

"The vast majority of the public respect and admire science and scientists"

Do you have any data on this? When it comes to climate change, for instance, you very often hear refutation of the science based on denigration of the scientist, or a questioning of the scientists' motives. It seems like the right's respect" for science is present only when the conclusions don't contradict some other ideology. So science is "respected" outside areas like age of the earth, evolution, climate change, etc. We see this on the left too - like with their refutation of GMOs - though generally less extreme.

We know from quite a few polls that huge portions of the US believe in patently anti-scientific ideas. 40-45% don't believe in evolution, for instance. Or look at numbers on what people believe the age of the earth is.

So again, there's a lot of good reasons to think statements like "the vast majority of the public respect and admire science and scientists" should be supported with evidence because we see so much disrespect for basic science from the right these days.

I think you're looking at technological innovation in the wrong way. Many steps lie between somebody having a bright idea and a technology becoming a standard feature of the economy. To improve the bang for the buck we get from energy doesn't require absolute innovation. Mostly it requires the adequate implementation of existing technologies. The largest barrier is often not ignorance but sheer inertia, and overcoming that is very hard work. As Heraclitus said long ago, "Every cow is driven to pasture by a blow," a rule which is all the more relevant when you recall that industry is largely run by business majors.

Enormously important example: traditional electric motors waste a huge amount of power because they operate at a single, fixed speed. Replacing the old equipment with variable speed motors (VARs) saves very significant amounts of energy with no loss of function, but it has been a terrific struggle to get industry to adopt 'em even though improved efficiency shows up in a bigger bottom line. It isn't a matter of being a good corporate citizen. It's about not being an idiot. Unfortunately, we're a long way from the general adoption of VARs even though the utilities (among others) have been trying to spread the message for decades now.

You are not an economist and it shows. Krugman's point did not in the least depend on the magic of the market, but only on the fact that you can't possibly make such strong claims reasoning from an identity. The precise problem here is dealt with by some other commenters, but the basic issue of confusion here is that "technology" in economics doesn't mean precisely what it means in common usage.

A "technology" is anything that transforms one set of resources into another. That means that the "technology" that produces CO2, for example, is one of a menu of possible choices. For example you can use coal plant to produce electricity or you can use natural gas. The latter would reduce emisions without any loss of output. In fact, that very thing just happened in the US. It happened because natural gas was cheaper than coal in the US. There was no other "magic of the market" involved and I assure you that the US grew at a healthy clip while that was going on.

One more thing, because it's something that everyone who dips a toe into economic issues should remember: Never reason from an identity!

I think there may be a semantic confusion in assigning special significance to the term "identity" in this context. From the IPCC:

"While the Kaya identity above can be used to organize discussion of the primary driving forces of CO2 emissions and, by extension, emissions of other GHGs, there are important caveats. Most important, the four terms on the right-hand side of equation (3.2) should be considered neither as fundamental driving forces in themselves, nor as generally independent from each other."

http://www.ipcc.ch/ipccreports/sres/emission/index.php?idp=50

So I think (since this is also not my field) that Pielke may be pushing the "identity" past its' intended use; it's a convenient data analyzer, not a mathematical certainty. Indeed this layman is led to believe the Kaya identity is as close to a mathematical certainty as Moore's law is to a law of physics.

As you can see from this identity, in order to reduce CO2 emissions, obviously we cannot change the amount of cake that we eat each year (C/P), and we cannot change the recipe for cake to bake them at a lower temperature (E/C). Since technology cannot be improved by fiat (see Pielke), I have proven that reduction in CO2 emissions is impossible. This identity is ONE HUNDRED PERCENT TRUE! It is therefore IMPOSSIBLE TO LOWER CO2 EMISSIONS. THIS IS MATHEMATICALLY UNDENIABLE.

Wrong interpretation of your own equations. If CO2 is all atmosphere CO2 generated in a unit of time, P total population, E total energy consumption in the unit of time and C all cakes consumed in the unit of time, then the identity holds, but tells nothing as (E/C) means nothing really. Baking thermic energy here is not total energy. Or if you want it to be, then (CO2/E) means nothing, as total CO2 upon energy consumed only for baking is irrelevant.On data, you'll just have 2 of your ratios being almost inverse to each others, canceling in the product.

The meaning of the identity, to be above the simple tautology, remains in the meaningful ratios obtained. These ratios follow trends (or better, are constant) which have clear interpretation:- P is the demographic dimension- GDP/P is GDP per capita, meaning the comfort of life for each and everyone.- E/GDP is energy needed for output, which is fundamental (see the works for example of R.U. Ayres, R. Kümmel and D. Lindenberger in the economic litterature).- CO2/E is basically smoke out of a gallon, something that almost never changed..

The fallacy is in your last line. "Gallon" presumes fossil fuel. Presuming a total "oil" economy is fallacious in an argument about the economics of alternative existing energy sources. (Hydroelectric and photoelectric come to mind immediately. Also geothermal and nuclear.)

I agree with you that oil does not represent all economic production. But it represents a main factor, and if we add coal as GHG emiting energy source, then fossil energy sources are even more the great component. 40% of all World electricity production is from coal. And coming to the source of the debate, it is the main source for China's electricity (75%<x<80%). This is also why the hybrid technology is partially a fraud: one just changes Gas for coal essentially. With additional chemical pollution due to storage.One has also to understand that energy use in production is not only in electricity consumption, but also, and mainly, in transportation.

Again, I agree that we have alternative energy sources, which represent a choice to society. But it is not without problem: wind turbines, solar panels and nuclear plants for example, necessitate very specific components based on petrol or worst, rare metals and sands. Not that it participates in that sense to pollution (although the construction and deconstruction of a plant is polluting), but that also means these alternatives are not sustainable in the long run with current technologies, at the rate of expansion desired to answer all demand. Taking a broad picture, the economy (and the whole western civilization, or the whole world), is really relying on fossil fuels. What it needs is more energy savings, isolation and reduction of consumption rather than alternative technologies, which are mostly never part of any engineer's speech, despite economists fantasy.

For me, talking to Pielke is like something out of Alice in Wonderland, where words mean what he says they mean, neither more nor less. Here is what I wrote on his blog at the end of several times back and forth with him:

-------------

I find it rather frustrating to see the goalposts move all the time in this discussion. It appears you are now admitting that "technological innovation" (as you've defined it) *can* come about by government fiat. So we've gotten somewhere.

Now let's review the sentence you actually wrote:

"Because halting economic growth is not an option, in China or anywhere else, and because technological innovation does not occur via fiat, there is in practice no such thing as a carbon cap."

So if the government can, by fiat, raise GDP/CO2, say 3%/year, it can impose a carbon cap if it is willing to have GDP growth of 3%/year. This is *not* "halting economic growth". As you point out, depending on the numbers, it might involve *reducing* economic growth.

So, your statement is correct as written so long as we (a) read the words "technological innovation" to mean anything that changes GDP/CO2 whether or not it is actually new, (b) ignore the part about whether it can come about by government fiat and (c) understand that the word "halting" is supposed to mean "slowing down but not stopping".

Regrettable that it sometimes takes so long to pinpoint the precise points of disagreement. Yes it's in the interpretation of the identity where Pielke's fallacy lies. In particular, the term (CO2/E) does *not* invoke *only* technology innovation as Pielke fallaciously presumes. As Krugman points out, that term also invokes (at least) political and economic "innovation" ("choices" of *existing* technologies). So it boils down to a fallacy of equivocation on "technology" on Pielke's part. Alice in Wonderland, as you point out.

It was really quite remarkable to see how he wanted to change the discussion from the clear implication of what he wrote to wanting to have a discussion about "math". There was no math in Krugman's original post, nor in my comments. He dismissed all of it as "semantics".

You need to pay more attention to context. Normally Krugman is attacked from the right by people who have blind faith in the power of markets. Except when someone proposes to let the markets solve a problem. Then, suddenly, everyone on the right agrees that capitalism is an utter failure and markets cannot solve any problem at all.

"Cap and trade enables a polluter to pollute by paying a penalty ... It is not clear how the payment of the penalty by the polluter will mitigate the suffering of the people affected by the pollution."

Actually, it is quite clear. Say you have two companies: CoA and CoB. CoA realizes that for a fairly small amount of money, it can greatly reduce its carbon footprint. CoB thinks that reducing it's carbon footprint will cost a lot if done directly. So, CoA spends a little bit of money and reduces its footprint. Meanwhile, CoB gives more money to CoA who further decreases its footprint quite efficiently.

The point is that the overall footprint is efficiently reduced.

The atmosphere is a commons. It is reasonable and moral to limit the overall amount of pollution that can be dumped into the atmosphere. Normally, we would pick a cap where the pollution is sufficiently small and dilute so as not to be noticeable and where natural processes can remove the pollution from the atmosphere each year. If we are already above that point, we would tend to pick a cap somewhere between where we are now and where we want to be. We would lower that cap over time so that as people learn to reduce their emissions, they can apply that learning, so that the cap does not impose sudden draconian costs. Once we pick the cap, we then auction off the rights to emit up to that cap.

The cap for pollution is not a matter of morality. Comparing the ability of a commons to absorb damage and recover from it is entirely different from asking a society to absorb murder and recover from it.

One of your basic theses is that in a democracy, one must justify and re-justify a policy until everyone agrees that a policy is justified. However, that is not a democracy. In a democracy, we realize that there are some people that will prefer selfish personal gain over the welfare of most of society. There are other people that are incapable of thinking deeply through problems. It is not reasonable to require that policy be justified to someone who covers their eyes and ears and shouts "Nyah, nyah, I can't hear you."

If you can't understand that cap and trade worked for acid rain and worked for Ozone and so will likely work for Carbon Dioxide, there is no need to cater to your ignorance and justify the policy further.

The Kaya identity is an identity. It contains nothing empirical. The identity describes a relationship between some accounting totals. Until you put numbers on the terms you know nothing. You just have an impression that you have a magical insight. In the real world, the components of the identity all vary enormous from place to place and time to time and it's bleedingly obvious that they will continue to change.

Arguing from the Kaya Indentity is like arguing that knowing there are 12 eggs to the dozen lets you know something about egg production numbers.

That's why it's a delusional argument. If you assume some kind of just-so stable value for CO2 per GDP you can conjure a result but the stability of the terms in the Kaya Identity is the question, not the answer. If you do the research and get the real world numbers and change estimates you will then have an actual result. Dragging out the Kaya Identity tells you nothing more.

In fact, this work has been done by several groups with real numbers and the GDP hit for different carbon reduction schemes has been estimated. It's a genuine hit, a few percent of GDP growth, one-off, spread over a couple of decades. It is obviously not one we humans can't handle since the numbers are the same order (or less) than the GFC or the Iraq war on impacted populations. The reason that it is "too difficult" is not some iron law of economics or insurmountable technological issues but that more some significant power centres are making a lot of money out of the energy production status quo. How do you think the argument would go if the same people were going to make the same money out of decarbonisation? Um, let me guess...

You got to my point first. and excellently put I might add. He also neglects to mention subsidies for oil and gas that exist throughout the world, but that too is a policy choice that contributes to the amount of energy consumption (by increasing consumption) and national GDP figures.

As a bunny who has long been involved with Roger Pielke Jr's delusions allow Eli to point out that you got this entirely backwards. Pielke and his pals at the Breakthough Institute have long claimed that the way to get a win over climate change was through magical new technologies that will appear if we would only put a few billion into research. To fund this they advocate an inadequate (to affect change in habits) carbon tax.

The stock of emitted CO2 has neither gone down nor have the spate of investments waned, while the Pigouvian tax initiatives or caps have been deliberated by left, right and center, for several decades. The mathematical realism on the other hand, Kaya Identity et al, will always hold good unless of course we have a new paradigm where de-industrialization adds to the progress of humans, with or without happiness.

My goodness, you are claiming this "identity" is a tautology?!?!?!?!?!?! On par with established physical models? No no no no no no no, as Krugman points out again in rebuttal, economics is choices, and a high school stat teacher could tell you this relationship is purely correlated on human choice.

Say our #1 goal in life was refrigerating eggs in the Sahara. If people could be persuaded to say, eat their eggs in a more temperate climate, it's possible the economy could both grow and reduce emissions without a single technological breakthrough. This is more or less what Krugman states in response, but wow, the premise of this article is mystifying.

All I can say is I wouldn't dare send a child of mine to Heriot-whatever university if this guy can somehow be a lecturer of any mathematics and think that a simple short term economic relationship is somehow set in stone. Amazing.

That wasn't what has been wrong with Krugman recently, but it's close. There's a free market ideology that says that forcing companies to engage in economic activity must necessarily lower total economic activity (GDP). It's, at bottom, a dogmatic anti-government and totally unscientific axiom.

The people living by the airport do benefit from the airport. They are likely harmed by the airport more than they are helped, but they are also helped. It's an important distinction to make I think because the policy of building the airport is basically neutral (ideally at least although zoning can be pretty biased). The same goes for buying pollution rights (while still complying with EPA rules mind you). Although some may be harmed more than they are helped, the policy is weighing everyone's goods against everyone bads, with a regulatory floor in place.

More substantively I think that this piece (and the letter that inspire it) fail to acknowledge that we have the technologies now to begin the transition from oil. We also subsidize the oil and gas industry massively. The point is that cap and trade is not becoming policy in a void where all the dials are set to zero. Rationally expecting improvements to technology is different than sprinkling magical fairy dust. It also occurs to me that communicative potential of financial markets is contingent on the actors in that market not being biased in some way.

I do appreciate the political points though. I think that it is too often forgot that majority support while necessary is not sufficient for sensible policy changes to occur. But I don't think we should ignore the communicative potential of law and litigation (perhaps analogous to Hirschman's concept of voice).

Isn't it appropriate, in view of the comments pointing out the fallacies in the post's argument, that the writer append an update in which he acknowledges and responds to the (quite cogent) objections?

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About Me

I am a Lecturer in Financial Mathematics at Heriot-Watt University in Edinburgh. Heriot-Watt was the first UK university to offer degrees in Actuarial Science and Financial Mathematics and is a leading UK research centre in the fields.

Between 2006-2011 I was the UK Research Council's Academic Fellow in Financial Mathematics and was involved in informing policy makers of mathematical aspects of the Credit Crisis.